Atlas Honda investment plans

Atlas Honda Limited has announced plant expansion plans in a bid to capture the growing demand for two-wheeler in the region. The expansion plans have come at a time of increasing competition for the Japanese assembler by imported Chinese motorcycles and the re-entry of Yamaha in the game.
According to news reports, Honda Atlas Group plans to invest $200 million, which will involve expansion of production capacity for its motorcycle manufacturing facilities by 250,000 units. Currently, total production capacity stands at 750,000 units per annum, with nearly 90 percent of production taking place at the Sheikhapura manufacturing facility.
Talking to BR Research, sources at Atlas Honda acknowledged that the company’s market share has eroded in recent years due to the influx of cheaper Chinese manufactured brands. However, they insisted that the use of Japanese technology and superior product quality confers an unmatched advantaged on Honda products, allowing the company to maintain its position as a market leader with 47 percent share.
That said, AHL has seen its Japanese advantage threatened in recent months; in a bid to attract foreign investment, the Federal Government announced a deal with Yamaha Motor Company for a $150 million investment in two-wheeler manufacturing segment under a protective tariff regime.
Under the new entrant policy for motorcycle manufacturing, Yamaha will be exempted from customs duty of 32.5 percent paid by existing players on import of automotive parts for a period of five years, giving it a cost advantage over other players, potentially threatening Honda’s market share.
Moreover, the growing purchasing power of the burgeoning youth segment in the country has added to the demand for more powerful bikes with improved technology. Local assemblers have failed to keep up with the evolving demand in the past, and Yamaha’s re-entry with new technology could deal a fatal blow to Honda’s long standing position.
On the flip side, local demand for the two- and three-wheeler segment has stagnated at around 825,000 in the recent past, with Honda operating its existing facilities at a maximum of 80 percent capacity utilization, recording production of 635,000 units against full capacity of 750,000 units in FY13. Given the saturated local market, questions have been raised about the need for expansion.
Company sources assert that the expansion is needed to cater to the growing regional demand and reach export markets beyond Afghanistan and Bangladesh. However, misgivings abound among critics who speculate that the investment announcement may be an attempt to discourage Yamaha and other new entrants from entering a market already saturated by well entrenched existing players.
A financial industry analyst reminded BR Research of the time when local car assemblers stepped up production to counter the Malaysian manufacturer Proton, which ended up wrapping its production as a result.
That said the dynamics of two-wheeler and passenger automobile segments are not exactly the same. Just like the rest of the economy, the auto sector is in dire need of new investment. Hence, one should hope that space is provided for successful accommodation of investment by both players such that Pakistani manufacturers can one day become globally competitive.